Difference between Liaison office, Branch office And Wholly Owned Subsidiary

Any foreign company which wants to set up a business presence in India has the following options:

Registration of Liaison office in India.
Registration of Branch office in India.
Registration of Wholly Owned Subsidiary Company India.

Choosing a particular registration out of above depends upon multiple factors that are mentioned below-

Purpose for which it may be registered.

Liaison office: It can only up liaison activities in India and can act as a channel for communication between its head office abroad and Indian parties. It cannot undertake any commercial activities in India. Therefore, when the purpose of foreign company is to do water testing in India without indulging in full-fledged commercial activity. It opts for Liaison office registration India.
Branch office: Foriegn companies engaged in manufacturing and trading activities abroad allowed Branch office registration in India. Therefore, when the purpose of the foriegn company is to do engage in manufacturing and trading activities India, its opt for Branch office registration.
Wholly owned subsidiaries: It is a corporate entity incorporated under the companies act, 2013 and can do all activities like manufacturing, trading, provides etc. Therefore, when the purpose of foriegn company is to hold the shares in Indian entity and to engage in all types of commercial activities as well as manufacturing and trading activities in India, it opts for wholly owned subsidiary company registration India.

Analysis of difference between Liaison office, branch office and wholly owned subsidiary:

Meaning:

Liaison office: A liaison office also known as representative office can undertake only liaison activities. It can act as a channel of communication between the head office abroad and parties in India. It is not allowed to undertake any business in India and cannot have any income in India.

Branch office: Companies incorporated outside India and engaged in manufacturing or trading activities are allowed to setup branch offices with specific approval of the RBI. Normally, the Branch office should be engaged in the activity of the parent company.

Wholly Owned Subsidiary: An incorporated entity formed and registered under the Companies Act, 1956. It is a distinct legal entity, apart from its shareholders.

Constitution:

Liaison office:

1 An extension of head office.

2 It is a simple form of structure.

3 No operate legal standing

Branch Office:

1 An extension of the head office with right to accurate income in India.

2 It is simple form of structure.

3 No separate legal standing of its own.

Wholly owned subsidiary:

1 Company form of organization.

2 Separate legal entity.

Permitted activities:

Liaison office:

1 Representing in India the parent company / group companies.

2. Promoting export / import from / to India.

3. Promoting technical/ financial collaborations between parent / group

companies and companies in India.

4. Acting as a communication channel between the parent company and Indian companies .

Branch office:

1. Export/import of goods.

2. Rendering professional or consultancy services.

3. Carrying out research work, in areas in which the parent company is engaged.

4. Promoting technical or financial collaborations between Indian companies and

parent or overseas group company.

5. Representing the parent company in India and acting as buying/ selling agent in India.

6. Rendering services in Information Technology and development of software in India.

7. Rendering technical support to the products supplied by parent/group companies.

8. Foreign airline/shipping company

Wholly owned company:

As per its ’main objects’ stipulated in the Memorandum of Association subject to Indian regulations .

Criteria for set up:

Liaison office:

1 Parent Company should have a profit making track record during the immediately preceding three financial years in the home country.

2. Net Worth of the Parent Company not less than USD 50,000 or its equivalent.

Branch office:

1. Parent Company should have a profit making track record during the immediately preceding five financial years in the home country.

2. Net Worth of the Parent Company not less than USD 100,000 or its equivalent.

Wholly owned company:

A private company is required to be incorporated with a minimum Authorised & paid up capital of Rupees 100,000 and minimum two subscribers. No requirement of track record of parent company as shareholder.

Typical Terms of Approval:

Liaison office:

1 Not to undertake any activity of a trading commercial or industrial nature and not to enter into any business contracts in its own name without RBI’s prior permission.

2 No commission/ fees shall be charged or any other remuneration received/ income earned/ income earned office in India for liaison.

3 The entire expenses of the office in India will be met exclusively out of the funds received from head office through normal banking channel.

4 The office in India shall not borrow or lend any money from/ to any person in India without RBI’s prior permission.

Branch office:

1. Not to expand its activities or undertake any

new trading, commercial or

industrial activity other than that is expressly

approved by the RBI.

2. The entire expenses in India will be met

either out of the funds received from

head office through normal banking channels or

through income generated

by it in India.

3. The Branch Office will not accept any

deposits in India

4. The commission earned by the Branch Office

from parties abroad for any

agency business will be repatriated to India

through normal banking channels

5. Not to undertake any retail trading activity

6. A Branch Office is not allowed to carry out

manufacturing or procssing activities in

India, directly or indirectly

Wholly owned company:

A private company is required to be incorporated

with a minimum paid-up capital of INR 100,000

and minimum two subscribers. Broadly, it:

i) restricts the right to transfer its shares

ii) limits the number of its members

(shareholders) to fifty;

iii) prohibits any invitation to the public to

subscribe for any of its shares or debentures; and;

iv) Prohibits any invitation or acceptance of

deposits from persons other than its members,

directors or their relatives.

The conditions will be different for Public Limited Companies.

Time limit of the approval:

Liaison office:

Normally 3 years from the date of the approval.

Branch office:

Nomarlly 3 years from the date of the approval.

Wholly owned company:

Until company decides to close down.

Basic registration:

Liaison office;

The following registrations / approvals will be required:

1. Professional Tax

2. Shops and Establishment Act Registration

3. PAN / TAN

4. ROC Registration

5. Import Export Code

Branch office:

The following registrations / approvals will be required:

1. PAN / TAN

2. Service Tax

3. Professional Tax

4. Shops and Establishment Act Registration

5. Importer Export Code

6. VAT

7. ROC Registration

Wholly owned company registration:

The following registrations / approvals will be required:

1. PAN / TAN

2. Service Tax

3. Professional Tax

4. Shops and Establishment Act Registration

5. Importer Export Code

6. VAT

Liabilities of parent company/ Head office;

Liaison office:

Parents company liabilities should be unlimited for all acts and omission of LO.

Branch office:

The liability of the branch office is unlimited. The assets of the parent company are a risk of attachment in case the liabilities of branch exceeds its assets.

Wholly owned company:

The liability of the parent company is limited to extend of its shareholding in the WOS. The assets of the foriegn company are not subjected to any attachments.

Permitted income:

Liaison office:

The entire expenses of the LO in India will be met out of the funds received from Head Office through normal banking channels. There will not be any income of the LO.

Branch office:

The entire expenses of the BO in India will be met either out of the funds received from Head Office through normal banking channels or through income generated by it in India.

Wholly owned company:

All income arising out of its business activities.

Indian income tax.

Liaison office:

Since there is no income accrual, there is no income tax. LO is required to file information in Form 49C with the Income Tax Department.

Branch office:

Since a branch office of a foreign company is taxed as a foreign company in India, it is taxed @ 41.2% or 42.23% if the taxable income exceeds INR 10,000,000 during any financial year (FY) Any Indian company is taxed @ 30.90% or 33.99% if the taxable income exceeds INR 10,000,000 during any financial year (FY)

Wholly owned company:

Any Indian company is taxed @ 30.90% or 33.99% if the taxable income exceeds INR 10,000,000 during any financial year (FY)